TYPES OF SCAMS

Whether you’re approached online or in person, or if the scam is a fake oil field or technology investment, all investment scams have one thing in common: they can take your hard-earned money. The good news is that many of these scams can be spotted early, if you know how to recognize them. Most are variations on the ones we outline below. Knowledge is the best defense; so, scroll down, empower yourself with information, and protect yourself from fraud.

Affinity fraud starts close to home – literally. This type of investment fraud takes advantage of the trust and friendship that exists within groups of people with something in common, like religious organizations, ethnic communities, social clubs, and even professional groups. Scam artists are part of – or pretend to be – members of the group and often enlist unsuspecting leaders of the group to spread the word about the scheme and make it seem credible.

Common Investment Scams

Forex Scam

“The ads looked legitimate and the trader said it was easy and exciting…”

Forex, FX, or foreign exchange is the trading of foreign currencies. Forex trading is incredibly complicated, even with professional training and very advanced software. Because of this complexity, fraudsters will build websites purporting to offer forex trading, and try to lure investors in with promises of high rates of returns with little or no risk; in reality, they’re simply stealing your money. Since they’re often unregistered dealers or brokers outside of Canada, it is very difficult, or even impossible, for victims to recover any losses or deal with a possible dispute.

Common Investment Scams

Binary Options Scam

“Trades happen fast, and it seems easy: you win or lose. Except it didn’t matter if I won or lost because I never got any money back.”

Binary options seem simple: they’re essentially all-or-nothing bets on how a currency or stock will perform over a limited amount of time. Binary options scams typically rely on enticing online ads, emails, and social media to lure people in, often showing investors virtual gains on their accounts. Except these profits don’t exist and since many of the trading platforms are overseas, it can be very difficult to protect or retrieve the investment that has been lost. Despite being banned in Canada by securities regulators (including the ASC), binary options scams are extremely prevalent.

Common Investment Scams

Pump-and-Dump Scheme

“I bought stock based on extremely positive recommendations – but it was just hype to drive a bad stock’s price higher.”

A pump-and-dump scheme is when a stock promoter creates false hype and brings in lots of investors to drive up the price of a stock. The promoter then sells their shares once the price reaches a certain point (and also stops promoting the stock), and then the stock price plummets – leaving investors who believed the hype with a worthless investment. Typically, potential investors receive an email or phone call touting an “exciting” opportunity or may read about it in an online chat room or forum. Without properly researching the opportunity, they buy into the excitement, hand over, and then lose their money.

Common Investment Scams

Pyramid Scheme

“I was told I had to recruit ten new people before I could get my money back or see any returns.”

Pyramid schemes don’t just turn investors into victims – they inadvertently turn them into promoters of the fraud too. The scam is based on a hierarchical structure like a pyramid, where participants recruit new participants to make money from, who then in turn recruit more for themselves. The recruiters move up the pyramid as new investors get involved until new recruits stop joining and the scam collapses. The scheme always seems attractive with promises of high returns and claims of legitimacy; however, the majority of those who buy in lose their investment.

Common Investment Scams

Recovery Room Scam

“They promised me the chance to make it all back…”

Recovery room or reload scams are especially cruel as they are targeted directly at recent victims of investment fraud. The original fraudster often sells the victim’s information to another scam artist or criminal organization, who then offers the recent victims to buy the shares purchased by the victims in the initial scam at an inflated price. But, to receive the money, investors are asked to pay taxes or a service fee, which is simply a fraudulent demand for more money, and the victim loses again.

Common Investment Scams

Emerging sectors scam

“I thought I was buying into the next big thing. But I got nothing and lost it all.”

Scam artists may develop fraudulent investment opportunities based on “the next big thing” or on emerging sectors (cryptocurrency, marijuana, etc.). There may already be legitimate investment opportunities available in these sectors, and you may have seen or heard about them in the news. Before you buy into the hype, be sure to take the time to check out the investment, to determine if it’s legitimate or a potential scam.

Cryptocurrency scams are when fraudsters use new currencies like Bitcoin to defraud investors of their hard-earned money. Bitcoin is a digital currency that emerged after the financial crisis and offers people the opportunity to buy, sell, and trade without the involvement of banks – but it’s unregulated and extremely risky.

Common Investment Scams

Ponzi Scheme

“The money I invested was actually just used to pay returns to earlier investors.”

A Ponzi scheme is based on an investment that doesn’t actually exist at all. Early investors are paid returns with the money of later investors until the entire scheme eventually collapses in on itself as new investors stop joining. The fraudsters behind the investment often promise high rates of returns with little to no risk – a promise that, like most things too good to be true, is false.

Don't be a victim of investment fraud

Now that you know the scams, here are tips to protect your money:

Ask questions and demand satisfactory answers.

Take notes when you talk with salespeople.

Be suspicious of high-pressure sales tactics.

Don’t let anyone rush you; an investment decision deserves proper time for research and consideration.

Don’t be fooled by appearances; it’s a fraudster’s job to make great first impressions.

Always seek advice from an independent qualified professional or even a lawyer if you don’t understand a document.

Never accept a verbal agreement; always get it in writing and keep it handy.

Don’t trust an investment just because of the person involved in it; even if they are high-profile, or you trust them, they could unknowingly be a victim too.

Always check registration. In order to legally sell securities in Alberta, an individual must be registered with ASC (with very limited exceptions).